After a tumultuous year that featured the dismissal of its CEO, drug-development company Oxygen Biotherapeutics is starting 2012 in its best financial shape in years.

The small, publicly traded Morrisville company turned a financial corner at the end of last year when it sold $7.5 million in preferred stock and warrants to institutional investors. The company received $3.5 million in December, with the second installment expected midyear.

In the past, Oxygen Bio has raised money that would carry it forward for about six months, but this was a richer deal.

"We're in a position right now where we can execute our strategy and not be in the (financial) markets for a year, if not longer," said Michael B. Jebsen, the company's interim CEO, president and chief financial officer.

Taking advantage of that stability, earlier this month the company announced it was expanding drug-development efforts with preclinical trials to determine whether it has a potential treatment for pruritis, a skin disorder characterized by acute itching. It views the tests as the first of a series of trials to see whether the drug treats a variety of skin conditions, including psoriasis and acne.

Even if all goes well, Oxygen Bio's drug candidates are years away from winning regulatory approval and making it to market. The 17-employee company also is involved in Phase 2 clinical trials of Oxycyte, a treatment for traumatic brain injury; and it's conducting preclinical trials of a substance for healing wounds.

Jebsen was named interim chief executive in August when CEO Chris J. Stern was dismissed after an internal investigation uncovered evidence that Stern had engaged in financial misconduct and misrepresented his academic credentials. Stern, who was responsible for shifting the company's headquarters from California to the Triangle in 2008, maintains his dismissal was unwarranted.

In the wake of the departure of Stern, who also was the company's chairman, the board of directors was revamped. New board members include: Chairman Ronald Blanck, a former surgeon general of the U.S. Army and former commander of Walter Reed Medical Center; Chris Rallis, executive-in-residence at Durham venture capital firm Pappas Ventures and former president of Triangle Pharmaceuticals; and Anthony DiTonno, former president and CEO of Neurogesx, a San Francisco pain drug company.

Blanck, who credited Jebsen with doing "a terrific job" as interim CEO, said the new board expects to ramp up its search for a permanent CEO soon.

Blanck credits the company's core technology - perflourocarbon molecules that absorb large concentrations of oxygen - for its ability to raise new funding despite a bumpy recent history. "I think we have a winner," he said.

The healing power of oxygen is so expansive, company officials say, that Oxygen Bio has to be selective about which products to pursue given its limited resources. That includes determining which products it should develop on its own and which it should seek a partner with deep pockets to develop.

"We can't possibly develop them all internally," Jebsen said.

In an unusual twist for a small drug-development company, Oxygen Bio also sells an over-the-counter cosmetic line, Dermacyte, which is used to treat fine lines and wrinkles. It's sold by dermatologists, plastic surgeons and spas.

The cosmetic line, launched in 2010, grew out of the company's drug work. The pruritis treatment it is developing is a concentrated version of Dermacyte.

Oxygen Bio is seeking a larger partner to market Dermacyte, which generated $86,892 in revenue for the first six months of its current fiscal year.

"Our intent was never to be a retail cosmetic company," Jebsen said.

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